In recent years it has been ‘all change’ in the UK’s celebrated health service, the NHS, after the 2012 Health and Social Care Act shook up NHS institutions and triggered restructurings of services.

Healthcare seems boring – until you need it: and then your healthcare system is what makes the difference between just being able to walk into a surgery or a hospital for care as in the UK – or having to stump up tens of thousands of pounds – as in the US if you don’t have health insurance.

Recent government policy in the UK is changing the health service, claiming to increase choice and efficiency through the use of the market in our health service. But underneath all of this, what is really going on, and is it really good for patients?

Efficient Competition?

Traditionally, NHS services were all funded by a ‘single payer’ – the state. Recent changes have split NHS organisations between ‘purchasers’ and ‘providers’. First of all, ‘purchasers’ were given state funding to buy services for patients from other public organisations: the ‘providers’. Got it? State organisations buying services from other state organisations – makes sense, right? This has now been extended further by the Health and Social Act, to allow private companies and the third sector as well as public NHS bodies to bid for contracts. This is supposed to increase efficiency by introducing competition: by choosing between a number of different options purchasers are able to get the best deal, in theory.

These changes are also based on the idea that the private sector is more efficient than the public sector – an idea that might not seem quite as obvious to anyone who often travels on the UK’s privatised rail service, with expensive fares despite a significant state subsidy.

Efficiency or Bureaucracy?

Looking in more detail, creating a market in healthcare has itself proved vastly expensive: NHS spending on administration increased from five percent before the introduction of the internal market to twelve percent afterwardsⁱ.

Any potential benefits of market competition are also reduced in healthcare as it is difficult for patients and healthcare purchasers to get enough information to make well-informed choices between providers: creating league tables for services is difficult, as good health is affected by many things, not just the quality of health services. Economic theory argues that markets will be efficient where all participants have perfect access to information: this is not the case in healthcare. Is someone about to have their appendix removed going to undertake detailed research into the pros and cons of the different surgeons who might be able to carry out their operation?

Counting the cost

Whilst the intention is that providers are pushed to provide better services for less, with competition between healthcare providers often driven by price rather than quality – which is difficult to measure – competition can end up driving quality downwards. Many NHS ‘savings’ have also been achieved by cutting employee pay through a five year pay freeze. In addition to harming workers’ welfare, this may have a negative effect on the wider economy, by reducing spending employees’ spending power, with knock on effects for other businesses.

The Big Picture

The NHS provides health care to all UK citizens for less cost than in many comparable countries: according to 2008 figures, UK healthcare spending amounted to 8.7% of GDP, compared to 11% in France, and 16% in the United Statesⁱⁱ. But in addition to judging health services on cost and effectiveness, we must also look at how good they are at providing everyone with access to healthcare – particularly if healthcare is considered to be a human right. In this area the NHS’s traditional state-provided model has many benefits: it has repeatedly come top in a Commonwealth Fund survey of OECD nations for both effectiveness, and for access to healthcareⁱⁱⁱ.

Instead of asking whether the NHS is affordable, we should be asking whether it can afford competition.

Find out more:

NHS Privatisation keeps on failing patients – despite a decade of warnings:

http://www.theguardian.com/commentisfree/2014/aug/15/nhs-privatisation-failing-patients-warnings

Mythbusters: “The Private Sector is more efficient than the public sector”: http://www.neweconomics.org/blog/entry/mythbusters-the-private-sector-is-more-efficient-than-the-public-sector

Perfect Competition:

http://www.economicsonline.co.uk/Business_economics/Perfect_competition.html

Information Failure:

http://www.economicsonline.co.uk/Market_failures/Information_failure.html

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